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India’s largest employer has always been, agriculture which employs over 56% of the country's workforce, yet remains largely unorganized and fragmented. While Prime Minister Narendra Modi’s digital drive to provide financial inclusion to over 145 million households that do not have access to banking services may have achieved some success, the farming community is still largely dependent on traditional credit.

Fintech and Agritech have been rated as one of the hottest sectors to bet on by investors, but the reality remains that no large scale impact has been seen on the farming community especially when it comes to receiving credit. A lot of P2P lending companies have emerged promising small and medium sized loans for those not being enrolled in banks yet, but the agricultural community has been left out of this customer base.

No Focus on Credit

Most agritech startups in the last few years have focused on improving technology in the sector, which might help bring down cost of operations for farmers in future. But none have focused solely on providing financial inclusion to the community, the same way they have to retailers and manufacturers.

While one reason for the absence can be that the agricultural sector requires heavy capital commitment as procurement of equipment remains a major spend for most farmers, the lack of viable customer data may be the other stumbling block. Currently most of the farming community data lies either with banks or small micro lenders without whose help fintech companies will fail to make any inroads into the sector.

“Most farmers today are largely unaffected by this fintech revolution and still depend on cooperative banks, micro-finance companies or old world money lenders for their credit requirements,” said Krishna Byre Gowda, the Minister for Agriculture, Government of Karnataka, who feels any large scale impact is yet to be seen in the sector.

Earlier this year, former Reserve Bank of India (RBI) Deputy Governor SS Mundra had said that it may make business sense for brick-and-mortar banks to collaborate with the more efficient and agile fintech players for the sectors like agriculture. But progress is yet to be seen on this front.

Lack of Ground Presence

The rise of Fintech domain has naturally made access to funds, easier. But to make the farming community a part of this, just virtual presence is not enough, as models are required to connect the farmer to these funds in reality. Take instance of FarmDrive, a startup in Kenya, that connects smallholder farmers to loans and financial management tools through their mobile phones. It unlocks access to credit by increasing the efficiency and operational capacity of financial service providers using technology.

Some players like Samunnati, an NBFC which provides the required financing for various players in the agricultural chain, and has dispersed more than $15 million in loans with negligible defaults, are trying to solve the problem on ground, but connecting the farmer to the advantages of the fintech domain is still missing.

Time Sensitive Loans

Given that India is predominantly a rain-fed agrarian economy, time-sensitive small loans are the biggest challenge that farmers face. Unlike salaried professionals and businessmen, very few farmers credit data are enrolled in any kind of record-keeping platforms that can help track their farming activity and build a credit profile. This makes receiving loans at crucial moments even more difficult.

An IndiaSpend report showed that small farmers in Tamil Nadu borrow money from informal sources at 60% interest during season, a steep increase from borrowing from formal sources at the beginning of the season, reflecting their desperation for credit in the hardest times.

Professor Ramakumaar, Agro Economist, Tata Insitute of Social Sciences (TISS), speaking at the AIBEA's National Banking Conclave recently, said in this regard, “ Although farmers are the most disciplined re-payers of loans, there is an agrarian crisis because of definitional dilusions as well as diversion of funds from the needy small farmer.”

According to him one fourth of the direct agriculture finance given to farmers in India is through Urban/metro branches, leaving the rural areas, where most farming happens out of the loop. This in turn prevents the timely disbursement of loans, thus ballooning of loans in the farming sector.

Need For Large Scale Impact

Given the on ground challenges, can an effective marriage of data sciences and financial technology innovation revolutionize India’s agricultural credit scenario?

“We are positive it may yield results someday but there has to be a sizeable impact,” said Gowda. “It all sounds nice for coverage and to read how technology or fintech is going to change the agricultural sector etc, but where is the impact and what is the effectiveness is questionable at the moment, and needs more introspection,” he added.